Book Review: Moneyball

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I finished up Moneyball by Michael Lewis yesterday, and overall I thought the book was great! It isn't about investing, but it has a couple ideologies that can be applied to it rather well. Basically the book is about how Billy Beane, general manager of the Oakland Athletics, was able to create a successful team when the Athletics had far less money than other competing teams such as the Yankees.

Because the book seems to be more meant for the purpose storytelling and isn't really an "investing" book, I won't rant on much, but there is one main point I want to touch on. This quote is my number one takeaway from Moneyball:

If you challenge the conventional wisdom, you will find ways to do things much better than they are currently done.

What Billy Beane basically did was realize that the way the MLB world was valuing players -- based on their look, size, attitude, "talent" -- was strikingly inferior to judging players by their meaningful -- yet somehow overlooked -- statistics such as number of walks and on-base percentage. Beane and his right-hand-man, Paul DePodesta, pretty much turned the baseball world upside down by running a low-money baseball team in an innovative way that often put higher-budget teams to shame.

To flip this over to an investing connection, what Moneyball reinforced to me was that 1) following the crowd will usually give average or worse returns, and 2) finding what really matters and constantly improving your strategy in a cutting-edge way is what leads to the greatest success.

I'm not a baseball enthusiast in the slightest (although I did start watching when my local Rangers made it to the playoffs -- all to be now told in Moneyball, their results in the playoffs were a matter of luck), but I thoroughly enjoyed Moneyball. If you're just looking for a good book and/or enjoy thinking how these situations relate to investing, you will most definitely find the book interesting.

If you challenge the conventional wisdom, you will find ways to do things much better than they are currently done.

Not always. Sometimes you are just the oddball, not the moneyball. The conventional wisdom is that you can't turn lead into gold. Challenge that conventional wisdom and you will probably waste your life spilling arcane chemicals over mysterious substances in your garage. I can guarantee there are a lot of investors challenging the conventional wisdom who will end up broke. You will never hear of them, of course, you will only hear of the two or three who do it and succeed. Survivorship bias is a real, very very real phenomenon.

That is not to say that you shouldn't *always* look for angles that others have overlooked, but it also doesn't mean than when you find one it's automatically a good idea to run off and use it.

Yes, following the crowd may lead to average returns. Going off half-cocked with a crazy idea may lead to much worse. Sometimes cliches are true because they have come to be cliches by dint of so many real-life examples. Sometimes the same is true of "conventional wisdom."